Economic freedom leads to public satisfaction. Capitalism provides more freedom, economic or otherwise, than communism. Many things attribute to economic wellbeing, such as content with the government system, the presence of innovation, competition, and global economies. Each of these essential attributes of economic wellbeing are connected to capitalism and the effects it has on the world. Capitalism is more successful in maintaining a stable government and preserving peace as opposed to communism, because capitalism gives the populous more economic freedom.
Economic Paradigms such as free market capitalism, Keynesianism, and Marxism have had impacts on the Cold War. Keynesianism is the least extreme of these paradigms because it advocates for government interference in times of crisis, such as recessions. Free market capitalism is the concept of the economy being free from government control. The market is based on the needs of the producers and consumers. Milton Friedman and Adam Smith are a couple pioneers of the idea of uncontrolled economies, and the idea that the economy balances itself out. Smith believed that the economy didn’t need to be tampered, because supply and demand accounted for the changes without any required tampering. This is the opposite of Marxist Economics, which is the concept that the markets need to be controlled and planned. Marxist followers believe that capitalism is simply a stage in the process required to reach the end goal of a controlled market. These are two conflicting ideas that often separate the political left side from the right.
Capitalism has implications far beyond economic aspects. Countries or governments with communist economic systems have experienced more political uprisings and revolutions than countries with capitalist economies. The Cold War provides proof of how countries with capitalist economies prevail above communist economies. Hong Kong demonstrates how economic freedom leads to happier people, and happy people typically don’t attempt to overthrow government systems. Capitalism is an effective method of avoiding governmental failure.
The United States of America is an example of a capitalist, democratic, and relatively equal country in the world. If it’s compared directly to the Soviet Union, the United States is a progressive powerhouse. There are more equal opportunities for all different kinds of people. Even though not everyone ends up with the same socio-economic situation, people at least have a chance of achieving their goals if they work hard enough in a capitalist society. People in the Soviet Union were angry because they were impoverished, even though they believed they would be looked after by the government. United States President Ronald Reagan called for changes to be made with the Soviet Union, “We’ve stressed that an essential element in improving relations between the United States and the Soviet Union is human rights and Soviet compliance with international covenants on human rights” (1988).
Once Mikhail Gorbachev came to power, he began to implement reforms in order to improve the Soviet economy. Despite these efforts, they ultimately led to the collapse of the Soviet Union. The desire for economic reform surfaced from the growing economic inequality within the Soviet Union. Wealth became focused within the elite, while the majority of Soviets were suffering; the standard of living in the Soviet Union was one third of the standard of living level in America and less than half of West Germany and France (Johnson & Raynes, 1984, page ii). Low standards of living generally guarantees unrest with populations because people are likely unsatisfied with their economic situation. The downfall of the Soviet Union is evidence of the fact that governments are unstable when their preferred system of economics is not capitalism.
Capitalism supports equality in nations, because capitalism supports equal opportunity vice versa. Capitalism is sustainable because it is often accompanied with socialist political policies. Equal opportunities give more people the means to support themselves. Though there may be economic inequality in capitalist states, there isn’t widespread poverty at the same level as in communist nations. This is because the people who are motivated enough to sustain themselves will find a way to achieve what they want.
Major financial support is provided under communist governments. Theoretically this is a beneficial policy, but realistically it isn’t as beneficial as it is intended to be. At least 20 percent of Soviets lived in poverty compared to 14 percent of Americans in 1988 (Fein, 1989). The average Soviet only has to dedicate 6 percent of their income to paying rent, whereas Americans dedicate 26 percent of their income to living expenses (Fein, 1989). The Soviets denounced the existence of poverty in their country up until Gorbachev’s leadership, and instead claimed that poverty was only brought on by capitalism. The large number of people who were experiencing economic hardships sought for change in the USSR. Despite Soviet officials claiming that the poverty was caused by laziness, many believe that poverty was brought on by the economic state of the USSR. The economy under Gorbachev suffered immensely, causing over 20 million people to live impoverished lives (Fein, 1989). The communist Soviet Union crumbled soon afterward.
A defining factor of a capitalist economy is its economic freedom. The five most economically free nations are Hong Kong, Singapore, New Zealand, Switzerland, and Australia according to the Index of Economic Freedom (2018). Hong Kong is a part of China, yet the only things the Chinese government controls in Hong Kong is foreign relations and the military. The population grew in Hong Kong from 600, 000 to 6 million in fifty years (Friedman, 1998). This population growth was due to people fleeing from the communist state of China to Hong Kong. A major downside to reduced economic freedoms, is the reduced political freedom that typically comes with it. Both issues have gradually diminished in China since the height of their communist reign. It’s evident that people prefer freedom over control from the fact that people fled from their controlling to country, to a free country.
Friedman has said that Hong Kong has a Laissez-faire economy because government economic spending in Hong Kong is at most 15 percent of the national income (1998). Laissez-faire is French for “let it do”. In relation to economics, Laissez-faire refers to minimal interference in economics by governments. Hong Kong is very close to having a laissez-faire economy, which has its benefits. Hong Kong is very small in size, and therefore has very few natural resources; despite this, Hong Kong’s economy is booming. Its gross domestic product, GDP, per capita is the 17th highest in the world, at $61, 400 (The World Factbook, 2017). A high GDP per capita indicates a high standard of living because there is a large amount of economic output per person. The higher the GDP per capita is, the more likely it is that the public is satisfied with their country, which subsequently leads to a lower likelihood of political uprisings.
Unlike Marx’s theory that capitalism is only a stage that is overthrown by people who seek out communism after their dissatisfaction with capitalism, the Soviet Union was dissolved because people were unhappy with the communist system. The non-competitive nature of communism has negative implications on all tiers. The working class knows they are guaranteed the same benefits regardless of how much work they’re doing, and how well they’re doing it. The room for economic growth is minimal. At a higher level, there is no competition between firms, which causes a stagnation. No economic growth leads to unhappiness, which leads to political backlash, and revolutions.
Capitalism results in economic growth because it feeds innovation through competition. China has developed an increasingly free market economy. The Soviet Union was innovative whenever they were involved in competing with the United States, but for products only distributed within their nation, it was always the bare minimum. The “invisible hand” of competition, brings the market to a natural equilibrium according to Adam Smith. Competition supports individual growth as well, and eventually results in more specializations of work.
An important distinction between capitalism and communism is the idea of equal opportunity verses equal outcome. Capitalism supports the idea of equal opportunity, but this automatically results in an unequal outcome because of the varying amounts in which different people are willing to work. Communism on the other hand supports the idea of equal outcome. There should be no wealth gaps in a communist state because it doesn’t matter how much work a person puts into succeeding, they end up with the same result. There is no competition, and there is no opportunity for growth.
China was primarily communist before for the majority of the 20th century, but they began transitioning into a mixed economy during the 90’s. They’ve experienced great economic growth due to this transition. In 1990, China’s GDP was 360.585 billion USD, and in 2011 12.238 trillion USD (China, 2017). The gross nominal income, GNI, per capita has also grown from 330 USD in 1990, to 8, 690 USD in 2017 (China, 2017). The new plan for China is to focus on innovation and becoming a leader in technological advances. “Made in China 2025” is a plan set out by Xi Jinping to change the Chinese economy to a mixed economy instead of a controlled economy (Amadeo, 2018). They are recognizing the relationship that innovation and competition have in furthering the economy. China’s plans to evolve into a mixed economy with more privatized markets will turn China into a more economically balanced nation.
Europe also provides an example of how capitalist ideals benefit the economy. The European Union set out 10 billion Euros in their budget in 2015 for Horizon 2020, a research and innovation program (Budget, 2014). Horizon 2020 is a program that was initiated to increase Europe’s competitiveness globally, and “Seen as a means to drive economic growth and create jobs” according to the European Union (2014). It all comes down to economic growth; innovation leads to economic growth. The need for innovation is only felt when there is competition, which communist countries do not experience. Economic growth is vital for people to reap the benefits of an economy that is successful. When the citizens of a country see the ways in which their government has improved their country’s economy, they become satisfied, and satisfaction leads to stability in all realms.
Capitalist societies provide opportunity for globalization because of the free market. Globalization has its critics, such as Joseph Stiglitz. Stiglitz says that the bottom 90% in the US have experienced stagnation in their incomes for about thirty years (2016). While this may be true, Stiglitz is ignoring that there are economic implications to war because of foreign trade. Globalization has benefited China greatly, therefore globalization has its benefits. Free global markets force relationships and tolerance between countries. Communist economies have closed markets, like the Soviet Union. They relied solely on their economy, which may have been a contributing reason for their collapse. Globalized free market economies ensure global peace. The formation of trade arrangements such as NAFTA, and the EU has resulted in higher stakes for wars, because they have the potential to cause a larger economic downfall than in the past. Without a free market economy, trading is not possible, because foreign trade would not occur.
The North American Free Trade Agreement (NAFTA) is an example of a global economy. NAFTA was spearheaded by Ronald Reagan in 1980 during the height of the Cold War. His motive for a trade agreement was to compete with the European Union. The main aspects of NAFTA are: prioritizing deals with the countries involved in the trade agreement and having no tariffs. NAFTA is the largest world’s largest free trade agreement. There has been a steady relationship with the countries involved, and no wars have occurred. If the agreement were to be trashed, the U.S. would lose approximately 195 billion USD by 2025 (Erken, 2018). Canada would lose approximately 30 billion USD, and Mexico would lose 33 billion USD (Erken, 2018). These numbers only factor in the loss of money induced by tariffs, but in a situation of war, there would be a greater economic damage.
In a state of war, the economic stipulations multiply, because trade stops between countries involved in wars altogether. The markets are closed, and the economic equilibrium shifts; supply doesn’t equal demand. Equilibrium shifts can cause things the waste of products, as well as unhappy citizens. Countries realize this risk and do not get involved in wars against countries they have deals with. Alliances formed before wars are typically the ones that remain once a war begins, which is demonstrated by WWI with Germany, Austria-Hungary, and Russia. On the other hand, globalization limits the actions that countries are willing to take in order to help when it is truly needed. Globalized economies prevent unnecessary wars, but also prevent necessary interventions. An example is the Jamal Kashoggi murder case in 2018. Even after investigations, and the confirmation of the murder being ordered by the Saudi prince, the U.S. did not acknowledge their responsibility. This is mainly due to the major presence of oil in Saudi Arabia, and the U.S.’s dependency and interest in that asset.
The European Union is another organization that has contributed to the globalization of the economy. It consists of twenty-seven countries. The concept of a union began after WWII when many countries were struggling economically, but also wanted to reconcile their conflicts, particularly between France and Germany. The primary goal of the European Union is to promote economic growth by making it easier for European countries to grow their economies and integrate their economies with other European countries. Since the formation of the European Union, there have been no wars between countries within the EU. In fact, in 2012, the EU won the Nobel Peace Prize. They won for their commitment to “the advancement of peace and reconciliation, democracy and human rights in Europe” (Williams, 2016). The Nobel committee also recognized the connection of the EU and the transformation from a war ridden Europe, to a peaceful Europe. None of the countries currently in the EU have had wars with each other, despite a long history of wars before its formation.
The USSR’s economic failure may be attributed partly to their lack of economic and political relationships with other nations. The Cold War pit the communist Soviet Union against the Capitalist west, leaving the Soviet Union to fend for themselves. Prior to the economic downfall of the USSR, the Eastern Bloc collapsed, leaving no communist allies to bring them from the brink of destruction. Communist nations can only form political relationships, not economic ones. The United States, however, has helped out many other nations in need of help because of the free market allows them to. Very few countries now have communist economies because it is difficult to sustain. North Korea, China, Vietnam, Laos, and Cuba are the last remaining communist countries.
Out of these five, China has been gradually distancing itself from communism. China joined the World Trade Organization in 2001, signalling China’s integration into the global economy. China became the largest economy in 2015 by surpassing the United States, as well as the European Union (Amadeo, 2018, November 14). Although China is run by the Communist Party, the leaders since the late 1970’s have started a gradual evolution into a capitalist economy. In some ways, parts of China’s stellar current economic performance can be attributed to some communist aspects of the country. Compared to other countries, China has low wages because they have yet to reach a capitalist economy. The “invisible hand” hasn’t adjusted the wages to a fair amount. However, these low wages have allowed for China to become a manufacturing powerhouse. Look on the back of most products, and it’ll say made in China.
Capitalist economies force integration. With communism, countries are not dependent on one another, which may be seen as a positive thing, because one country’s economic recession will not affect another’s if there is no economic relationship between the two. This also means that there aren’t as many other nations willing to lend a helping hand in times of crisis. Despite this, countries benefit from interacting with other countries. Economic relationships often translate to other perks for the citizens of the countries as well, such as the terms of NAFTA and the European Union. Travelling to and from countries within these organizations is significantly more convenient than travelling between countries without global partnerships.
In the end, neither extreme capitalism, nor extreme communism are ideal in order to maintain a successful and sustainable government. Extreme capitalism, in other words, a completely globalized economy would be incompatible with having separate countries while also having a democracy. Some sacrifices must be made, and values taken into account. Fortunately, it is unnecessary to choose between strict capitalism and strict communism, when it is possible to mix the two and create a mixed economy, like most countries in today’s world. Economies shifting towards capitalism have seen more growth, as well as better political situations than communist leaning economic systems. Capitalism supports economic growth because of the invisible hand of competition and greed. Economic growth results in stable governments because economic stability creates a satisfied populous. Capitalist economies support world peace because of the tendency for capitalism to result in stability within nations, as well as between nations. Capitalist nations experience better economies, and more political stability when compared to communist nations. Capitalism is the superior economic system.
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